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Friday, July 19, 2013

Big business gets a free ride from BART

We reprint the following article from the East Bay Express that points out the free ride corporations get when it comes to mass transit funding like BART. Public expenditures and projects from transit to medical advances including pharmaceutical and scientific advances developed in public universities, generate huge profits and added value for the private sector.

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The transit agency says it doesn't have enough
cash to give modest raises to workers, but that's because the large
corporations that have benefited the most from its services pay almost
nothing for them.

By Darwin BondGraham
BART's board of directors, many of whom were elected on
progressive, pro-labor platforms, have taken a hard line against
employees at the bargaining table, arguing that the transit system is
starved for cash. In tBARTruth, however, 's financial documents show
that the agency regularly diverts tens of millions of tax dollars each
year that could be used to fund day-to-day operations — including worker
salaries — toward expensive expansion projects, such as the planned
rail extensions to San Jose and distant East Bay suburbs. Moreover,
transportation experts say that BART has, in effect, provided massive
financial subsidies to corporations and large land owners that have
benefitted the most from its services by exempting them from having to
help pay for the system.

In fact, BART is funded almost entirely through regressive means —
fees and taxes that impact low-income consumers the most. Currently,
passenger fares and local sales tax revenues make up 87 percent of all
revenue in BART's operating budget. In addition, BART directs some of
these funds to pay for capital projects, including rail extensions.

But transit policy experts say that revenues generated by sales taxes
and rider fares are poor sources of funding for system expansion.
Moreover, the diversion of such funds to capital projects means that
BART is effectively underfunding operations and maintenance, and
squeezing the pay and benefits of its workforce in the process. Transit
experts say that this has made BART appear starved for money, and is one
of the causes of the strike that choked the Bay Area two weeks ago —
and could do so again in August.

Worse still, experts say the biggest beneficiaries of the BART system
— large corporations and real estate owners around the stations,
especially in downtown San Francisco — have paid virtually nothing
toward BART's costs during the past several decades. It doesn't have to
be this way, though. BART has the authority under California law to seek
revenue from more progressive sources, such as taxing the increase in
land values its system has helped create. If BART tapped into this major
revenue stream, it could reduce fares for riders, build out the system,
minimize its dependence on difficult-to-obtain federal grants, and
avoid the labor-management conflicts over the budget that precipitated
the strike.

According to Robert Cervero, a professor of urban and regional
planning at UC Berkeley, BART has failed to tap into potentially
enormous streams of funding since it was built in the early 1970s. One
of the biggest funding sources for the system's initial construction and
expansion should have been special real estate taxes levied on property
owners who then experienced enormous land value increases after BART
stations were built. BART, a publicly funded transit system, created
huge windfall profits for the owners of land and buildings near train
stations, particularly in downtown San Francisco.

"BART has not been anywhere near as entrepreneurial as other transit
agencies around the world in leveraging the real estate land value
increases it helps create around stations in helping to pay for the
system," noted Cervero.

To understand this lost opportunity, Cervero has conducted several
detailed studies of how land values in parts of the Bay Area changed
after BART's construction. His findings, confirmed by other researchers,
show that land owners in downtown San Francisco, mostly large
corporations, saw dramatic appreciation of their property values in the
1970s through the '80s thanks to BART. Over the years, the train system
has delivered millions of suburban workers to major corporate employers
in San Francisco's downtown, thereby helping those companies thrive and
expand. Office rental rates and land values also exploded upward after
BART's construction. "Failing to exploit real estate land-value
increases BART has helped to create is a huge missed opportunity," said
Cervero.
BART has instead continued to rely on sales taxes and federal tax
dollars to fund the system's expansion, even though the operations and
maintenance costs to keep the current system in shape have grown over
the years.

Richard Marcantonio of Public Advocates, a nonprofit law firm engaged
in transportation policy, likens transit budgeting practices in the Bay
Area to cannibalism. "We're cannibalizing the existing system to build
these politically popular expansions," Marcantonio explained. "BART has
been shifting operations money to capital money, and over the years this
up-streaming uses up funds that could be spent on the existing system
in order to expand it. The result is that you end up having less and
less to operate and maintain the system you already have."

The strike that shut down BART two weeks ago was caused partly by
this inequitable status quo, according to Marcantonio. "When the time
comes for unions to re-up their contracts with BART, and the unions then
strike because they don't want to take a pay cut, you have this false
story line going out that the reason is workers are asking for too much
pay," said Marcantonio. "The real reason is that we're starving the
system for the operations dollars actually needed."
Marcantonio also compared BART's budget problems to world hunger.
"There's plenty of food out there, but the question is how you
distribute it."

Here's how the distribution currently breaks down: According to
BART's 2013 adopted budget, passenger fares supply 57 percent of the
agency's funding. Sales taxes levied in San Francisco, Alameda, and
Contra Costa counties cover another 30 percent of BART's fiscal needs.
Property taxes make up less than 5 percent of BART's budget, even though
the system's impact on real estate values in a few Bay Area hotspots
has been immense.

BART then diverts a big chunk of the sales tax revenues it receives
to its capital budget, and while this funding includes covering costs
associated with maintaining the current system, it also involves
spending money on system expansion. Sales tax receipts collected by or
granted to BART from other state and local agencies also are used to pay
off bonds associated with previous extensions of the rail system.
Additionally, certain passenger fare surcharges go toward paying off the
bonds used to build out the BART system. Other California and regional
sales taxes are already earmarked to fund expansion projects like the
planned BART line to Warm Springs in Fremont, and the extension planned
for eastern Contra Costa County. BART also plans to steadily hike fares
over the coming years to fund operations.

All these highly regressive sources of funding — which ultimately
fail to generate enough revenue for BART to divide among operations,
maintenance, and expansion — leave transit experts like Tom Gihring and
Jeffery Smith scratching their heads. Gihring and Smith study land use
and transit finance policies, and advise local governments in the
Pacific Northwest. Like Berkeley's Cervero, they say the best way to
finance new transit infrastructure, and pay for the expansion of
existing systems, is to "capture" the value created by the public's
investment when the system or extension is built.

"There is ample evidence that rail transit enhances land values near
transit stations," Gihring told me. Gihring, Smith, and their colleague
Todd Litman of the Victoria Transport Policy Institute of Canada have
compiled a list of more than one hundred studies showing the link
between transit investments and real estate values around the world.

"A basic principle in liberal economic theory holds that legitimately
created value belongs to the creator of that value," wrote Gihring and
Smith in a study of transit funding policies published in the American Journal of Economics and Sociology
in 2006. "Hence, government in its role as steward of publicly created
value is justified in collecting what the community has given." Gihring
and Smith advocate that these funds be used to pay back bondholders who
finance a transit project and to make down payments on future
improvements.

"It's fair for public jurisdictions to recapture publicly generated
land-value increases," Smith told me. Smith laments the fact that BART
never used such a strategy to raise funds for system construction and
expansion. "That was the plan of some back when [Ronald] Reagan was
governor, and the Mills Act was passed into law to fund transit systems
with assessment districts empowered to recover the resultant rise in
site values."

Cervero contends that the best way to increase funding for BART
"would be to create a benefit assessment district" around its major
stations, especially in downtown San Francisco. "Typically, benefit
assessment districts require the majority of property owners in the
district to approve the district and the set aside of funds for BART,"
he said. "This would not run afoul of Prop 13."
BART's existing powers as granted under the California Public
Utilities Code, in fact, provide the agency with the option of pursuing
these revenue-enhancement strategies, also known as land value
recapture. BART is authorized to create special assessment districts
that could tax real estate around newly built stations, for example, and
use those funds to pay off bonds that paid for the station expansion
and other expenses.

Large commercial property owners in the Bay Area, however, have
traditionally resisted such proposals to fund BART and other transit
projects. "Those private parties sway far more political influence than
you or I," noted Smith.

"Land value recapture is a great idea," Marcantonio agreed. But he
added that many large property owners oppose such ideas and think, "'Why
should we fork over our windfall profits when poor people can pay?'"

As a result, it would be an uphill fight to convince real estate
interests and corporations in San Francisco to agree to pay taxes to
help BART when there's no incentive for them to do so — since the system
has been serving them for decades. However, that may not necessarily be
the case for land owners and companies that stand to benefit greatly if
BART is extended to them in the future.
"All of this works best if a transit agency takes this on early in
the process," explained Cervero. "It's tougher to do with a mature,
built-up system. [But] as BART extends lines to Livermore, San Jose,
etc., it should consider introducing these kinds of assessment tools for
properties near planned stations."